Working to understand the complex connections between people, cities, and environments

Regional gas taxes, regressivity, and what spillovers count

So we got started on a gas tax regressivity discussion on Twitter the other day, with lots of people who have never published about gas tax regressivity explaining things to me, who has actually published on gas tax regressivity, about gas tax regressivity.

It’s been awhile since I worked on gas taxes, so I don’t feel terribly up on the literature, but there’s a lot here we can talk about both for California and for France anyway.

Again going back to the rent control discussion, so much of what happens with any policy, including tax policy, concerns what you do with the proceeds. If you increased the gas tax and then used the revenues to pay for school lunches in schools serving low-income communities, it could very well be a *progressive* change in the tax code. If you collect gas taxes and use the proceeds to re-pave the streets in the wealthy parts of town and leave the poor people to deal with potholes, it’s regressive all the way through. A gas tax takes a larger percentage of income from lower income drivers than higher income drivers, as do congestion charges, and so it meets the technical definition of regressivity, but without information on where the revenues go, we really should not shoot down gas taxes out-of-hand as regressive.

A couple things. In the case of gas taxes, I think it’s pretty safe to assume that most of the costs of gas taxes are shifted forward onto consumers no matter where you collect the taxes from. Producers here have at best an oligarchic structure, and granted US auto dependence (ditto much of France), consumers do not have a lot of choice about alternatives to purchase besides a) decreasing consumption (ok to a point if it means consolidating trips and ride sharing, but not to the degree it causes them to give up food) and b) purchasing more fuel efficient vehicles, which is also good to some degree, but it’s a durable goods purchase (long-term strategy) and I suspect the fuel savings costs get internalized to the value of the car (no proof, just skylarking based on the $5K premium SoCal dealers were tacking on Priuses a few years ago due to the wait list they had for them.)

This is all by way of saying that gas taxes serve as a Pigouvian tax on gasoline consumption, and society would like that, even though it pinches. It’s got to pinch if we want people to alter their behavior. But with transit alternatives sorely under provided and land use patterns what they are, the fact that working people have to drive in order to get what they need is hardly the fault of the gas tax.

There are any number of things governments can do to help out needly people who need to drive. Just as they can provide Fastrak credits each month for those drivers they worry might be unduly harmed by congestion charges, they can also provide tax-free or tax-discounted gallons to gasoline consumers in similar straits. They can increase the size of the EITC to accommodate for fuels taxes, but that is problematic granted cash flows for many impoverished families.

They can also roll out, as Transport London did, a ton of new transit services at exactly the same time they laid out their aggressive cordon toll. (Yes I am old to remember when they did it, and it was good implementation with some glitches, but still. You knew where the money was going.)

Rural consumers often have no choice. I prefer to parse based on income, but to the degree that some places have lots of substitutes, I really do think we’d gain quite a bit by moving to local option fuels taxes in a similar structure to local options sales taxes. There’s no reason why San Francisco couldn’t charge way higher tax gases than they do. Granted that many of the externalities associated with fuels consumption are local in nature, it’s appropriate that cities with air quality concerns and available alternatives like transit should charge higher gas taxes.

The discussion on Twitter took an interesting turn, then, as a whole bunch of people starting getting on me about spillovers and leaks, like somehow I don’t know these can be issue. But they are always an issue with any tax policy, and I think the concern about spillovers with the gas tax are waaaay overblown. Sure, there are consumers who always fill their tanks up on one side of the jurisdictional line to beat the tax, but how many of them are there? If we somehow got our regional governance shit together in California and the entire SCAG area charged higher taxes, who from Santa Monica is going to drive to rural Riverside every week/biweekly to save a few dimes a gallon? Ditto with just about all the big regional governments. Surely, we’ll lose some people on the borders. But the world has continued to spin, and cigarette taxes have continued to function, even though I used to buy a few more cartoons of cigs when I passed through Missouri on my way back to Iowa.

Something else caught my attention at the discussion: I’ve never seen this “OMG, border effects and spillover effects OMY” discussion over any other charging schemes. Urbanists squee in delight and clap their little hands at higher parking charges, seemingly unconcerned will the spillovers to neighboring areas (which may already be congested, too, and it’s not like those spilling over aren’t driving and dodging the charges). I’ve never once seen anybody fret about sales tax spillovers from one city to another. So why do people seem so concerned about gas tax dodging is beyond me. It’s a fact of life in local public finance, and it’s a numbers game. Santa Monica probably shouldn’t try a $9/gallon tax; the point is to capture a big enough market area that dodgers are a minor portion of the whole.

What I see in France is only somewhat about petrol taxes. Like Brexiters, I think they are pissed at Macron and government after government that does little for them. In Macron’s case, it doesn’t help he sounds condescending (even to the French)m and he cozied up to an American president that I strongly suspect many Frenchmen consider to the be apotheosis of American vulgarity, entitlement, and ignorance. I suspect they they are sick of austerity politics and “corporations first” neoliberalism just like the rest of us.